RSI stands for the indicator of relative strength. It shows the moments when the market is in oversold or overbought condition. To find the entry points, traders need to focus on the trend line that should be plotted on a chart. When setting up a chart, two lines that coincide with levels 30 and 70 should be drawn.
To enhance credibility of signals, traders should apply complex strategies, involving the moving averages – expansion of moving averages into a fan when the RSI breaks through the 50 level.
When is it better to enter the market, using the RSI?
When the trend line is above 70 (bullish trend) or below 30 (bearish trend), the index shows the stages of oversold or overbought conditions. If the trend is upward, then buy trades are recommended, and if the trend is downward, sell trades are better to be opened. If the trend line fluctuates near the 50 level, i.e. the market is flat, then traders should wait for more directional moves.
Traders can also enter the market when the RSI values coincide with values of other indicators or when candlestick and trend patterns are formed.